In yet another move to protect investors, the Securities and Exchange Commission has proposed a list of protections that aim to scrutinize how and if investment advisers are handling their client's assets properly.
One proposed amendment would require all registered advisers to undergo an annual "surprise exam" by an independent public accountant to verify those assets exist. An adviser would be required to disclose in public filings with the SEC, among other things, the identity of the independent public accountant that performs its surprise exam, and amend its filings to report if it changes accountants.
The SEC is also seeking to require advisers to obtain a written report prepared by a Public Company Accounting Oversight Board-registered and inspected accountant that would describe detailed controls for those clients whose assets are not held or controlled by a firm independent of the adviser.
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Unlike banks or broker-dealers, investment advisers generally do not have physical custody of their clients' funds or securities, the SEC said. Instead, client assets are typically maintained with a qualified custodian. The adviser still may have custody because the adviser has authority to withdraw their clients' funds held by the qualified custodian.
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